Deconstructing the Denardo Payroll Fraud: A Detailed Look at the Transactions

I bring many years of experience auditing to this project and that is how I approached the Denardo payroll fraud story. Before an auditor can assess individual transactions, professional standards require gaining an understanding of the internal control environment surrounding the transaction stream. Internal controls are the policies and procedures an entity uses to conduct business, in this case being the policies and procedures Bay St Louis used to generate payroll. Auditors gain this understanding by reviewing written policies and procedures, interviewing people involved in the internal control process along with a walk-through. It makes sense because to breathe life into financial transactions it helps greatly to understand the process that creates them. I relied on interviews with two former employees that have requested anonymity who have a detailed knowledge of the City’s payroll processes dating to the time Chief Denardo took his own life and what follows is directly based on those interviews.

The first step to being able to draw a paycheck is being listed on the annual payroll ordinance and I examined those going back to the year ended September 30, 2013 and sure enough Patricia Denardo was listed as a reserve police officer without fail. With that basic step understood the payroll process at Bat St Louis consists of two major parts.

Part 1 – Departmental time keeping:
1. The Employee turns in a time sheet to their supervisor, in the case of the Bay PD that would have been the Patrol Captain.
2. After approval the time sheet was sent to the Records Clerk for entry.
3. The Chief of Police approves and sends to City Hall for payment.

Part 2 – Finance Department
1. The time is received by finance, balanced, prepared for payment and sent to the Mayor for Approval.
2. Once approved by the Mayor, the payroll is generated including a direct deposit file which sent to the bank for payment.

In the case of the paychecks that I scheduled for Patricia Denardo, no less than 5 people would have been involved in the processing. The checks and balances are such that no one person can generate a paycheck. It is why the mechanics of the fraud required collusion, or in this case collusion by silence thus the audit finding in part 1.

Beyond those 5 positions that would handle the periodic payment of payroll, to the extent paychecks for holiday pay was issued to Ms. Denardo along with accompanying benefits such as Mississippi PERS also implicates Human Resources (think health insurance, vacation time accruals, overtime etc etc etc.) and the City Clerk’s office (salary ordinance, supervision of payroll, etc etc.). All told at least seven people would have handled matters involving a ghost employee and that does not count at least one other person that knew exactly what was happening and that particular person confirmed to Slabbed New Media that:

1. Ms. Denardo moved to the east coast after Super Storm Sandy struck in September, 2012.
2. She was given a going away party that was well attended.
3. Practically everyone knew Ms. Denardo had moved on.

What we’re left with is the specter of an employee that separated employment and was left on the payroll to continue receiving paychecks, with the money ostensibly diverted to her ex-husband’s account. Here is the 2013-2014 Payroll Ordinance:

Source: Bay St Louis Council Minutes

Like most embezzlement schemes, the amounts started out small and grew over time.

Source: Slabbed New Media analysis of paychecks issued in Patricia Denardo’s name 2014 to 2016

What caused the growth was the increase in hourly wage rate for patrol officers, which began at $8.50, growing to $15.17 by the time of the last paycheck issued in Patricia Denardos’s name. The spikes in the above chart were caused by overtime variances, with the largest paycheck issued in July, 2015:

Folks this is minutiae but it is important because it shows the mechanics of the Denardo payroll fraud had to involve collusion and beyond the silence it had to be sanctioned in order for it to be perpetrated. The one thing everyone I interviewed agreed was that it was common knowledge Patricia Denardo had left the area after divorcing her husband, the police chief. What happened after are the stuff of Machiavellian schemes and those inescapable, highly troubling conclusions I mentioned in the first part of this series.

The best records for that are actually at HCSO IMHO, who also listed Ms. Denardo as a Reserve Officer in a published report. The Bay did not list her in that same article, which was published about 8 days before Chief took his own life. For that reason, I do not doubt she did reserve work part time while she worked for FEMA.

If you read the Echo story Cassandra Favre did on Trent Favre’s remarks about this at the last Council meeting, he seems to think the answer lies in her FEMA work records, an assertion which I do not necessarily agree. The Sheriff’s office dispatchers would have a record of each 10-8 and 10-9 she radioed in as well as the calls they took in and dispatched out to her.

Trent Favre says the amount of the loss is $47,000 plus the taxes while the paychecks I scheduled came to over $72,000 (gross including taxes) and I did not get them all. In one respect, it does not matter how the theft prorated because everyone agrees there was a major loss. That said assuming she worked and responded to calls for BSL, I wonder how she settled her payroll considering it all would have come on the one check per pay period and that’s where it gets problematic considering Mr. Favre’s remarks last meeting about Ms. Denardo not being involved.

Sounds eerily similar to the payroll scandal that prompted the sweeping investigation of Jefferson Parish government under Aaron Broussard’s administration back in 2011. Slabbed was on the forefront and did an incredible job of shining the light on this and many other scandals that were occurring at that time.

It all started when a federal grand indicted Jefferson Parish President Aaron Broussard on charges of manipulating the parish payroll to boost his ex-wife’s salary. Broussard’s ex-wife, Karen Parker (who divorced Broussard in October 2009), and former Parish Attorney Tom Wilkinson were also charged. All three would ultimately plead guilty.

Questions about Parker’s pay arose when the media disclosed that she was being paid $65,000 a year as a paralegal supervisor under Parish Attorney Wilkinson, despite not having a required license. Instead, she was working for another department processing employee identification cards — a job for which she should have made $22,000 less — according to a 2010 report by the state legislative auditor.

The investigation metastasized from there. However, the point is that when things like this occur in the workplace — particularly when the workplace is a governmental agency– collusion is necessary. Governmental agencies have systems of checks and balances in place when it comes to processing payroll. These systems are hard to circumvent by the ordinary rank and file. Two or more people with decision making authority have to conspire or work together to bring about a desired result or an unfair advantage that would not happen under normal circumstances.

What has yet to come out is Chief’s unshareable need. In organizational crime like this, normally there is the person with the unshareable need and another person that enables / exploits it. In the Broussard matter the unshareable need was alcoholism. It has been a long while since I have inquired but I understand Karen Parker has been able to move on from those dark days and that is a nice thought as she was in way over her head back when.

Like in JP, I believe whatever the Chief’s unshareable need was, it was exploited. I attended some of the most critical council meetings in July and August 2016 as well as many others before then. Two audit firms were hoodwinked and that could not have happened without Chief backing Mayor Fillingame yet it was Chief that brought the DoJ issue to the then Council President Mike Favre back in the summer of 2015, which is what caused the DOJ grant fund blowup to begin with.

I haven’t yet answered all the question I have but there is plenty enough for next post on this topic and what we do best: analysis.

And, Rachael, ALL of the current Council, including two incumbents, voted to accept Culumber’s audit of the City’s books, which included in Culumber’s description of a
“collusion” in the payroll department resulting in a material weakness.
Yet, no internal investigation, just go after the deceased?!

When ever the Filingame Administration is involved there is always more to be learned. Times certainly aren’t as interesting now that he is gone. He had a debacle a week and sometimes daily!

The new council is going to be fine but will need to do more research before giving away things. Don’t take what the asking entity says for certain. Remember the Chamber and Murphreesboro Tennessee. A little research blew that claim right into oblivion.

Giving away other peoples money is never good. Would any of the council have given free rent with their own property. I think not. Knowblock and Hoffman have a commercial building, would free rent work for them? I think not. I suggest Alice Mosely go into one of their properties.

Based on an objective read of what is posted, it is possible that DeNardo was the only person involved in any criminal activity as to the payroll fraud. From the description given, DeNardo was the person who gave the payroll info to “finance” at city hall for the payment process to occur. I saw nothing to indicate that anyone below DeNardo knew what DeNardo passed along. Once at “finance,” there is nothing suggesting that the receiver knew (or should unquestionably suspect) anything was amiss. If DeNardo was, at that point, a trusted/respected official, there would have been no particular reason for anyone to suspect anything. As to the various approvals, I’d suggest that a lot of such ministerial activity in small-town government is (mostly honest) “rubber-stamping.” No, I don’t suggest that is proper (or that it isn’t), merely that it is the way it is. Should the council, mayor, clerk, etc. have paid more attention to that which they approved? Maybe, but 1) that is another matter, and 2) it doesn’t make them criminals, indicate criminal (or prove official) misprision or even scienter, although official misprision is marginally arguable under such a scenario, but in this case, neglect, mistake and/or stupidity are not criminal offenses.

From what has been posted, the ex-wife was out of the state and the money went into DeNardo’s personal account. Based on the information given, it is perfectly plausible that she had no role or knowledge.

But that said, from what has been posted, I see nothing that says all investigation is done with everything related to Bay St. Louis city government. If some agency gave DeNardo the “your life as you knew it is over” speech to flip him on other issues, freak-outs, takeoffs and/or suicides aren’t unheard of under those circumstances. If I were involved in whatever it might be, I’d be VERY worried as to why the FBI was even mildly interested in some penny-ante city payroll fraud. A federal end game wouldn’t have anything to do with the feds being interested in prosecuting DeNardo for that.

I was not at the party, would not know (the ex-?) Mrs. DeNardo if she stood next to me and know nothing about the DeNardo’s marriage or living arrangements. And I saw the phrases: “She was given a going away party that was well attended.” and “Practically everyone knew Ms. Denardo had moved on.” But such non-specific allegations as to what “practically everyone” might or might not know or who might have attended a party are meaningless in this context. Who, precisely, is “practically everyone,” what specifically do they allege to know and how and when did they come by that knowledge? What are the full names and precise times of attendance of all guests at the party? If you want to accuse someone of a crime based upon such things, those are the kinds of answers you better have. Moreover, there is nothing on the list of salaries that would stand out, i.e., an unusual amount to a payee obviously suspicious to any reasonable person – $100,000.00 exactly to “Bugs Bunny, spaceship pilot.” It looks like a bunch of real names (which apparently they are), with similarly grouped titles (which are real), receiving similar amounts (all within normal ranges).

What matters is – AHEM! Hint alert! – the specific information particular individual(s) possessed at the time the action(s) were committed – and I saw nothing that says, “Fred Flintstone was the person who signed the checks. When Fred signed those checks, Fred had specific knowledge that DeNardo was no longer entitled to receive the checks Fred was signing.” The fact that Wilma, Barney and Betty might have been at a party and/or knew all sorts of details about the DeNardos and told Fred all about it does not impart any admissible knowledge upon Fred. In fact, generally speaking, if Fred were to attempt to testify as to what someone told him about the party, DeNardo or anything else, the opposing side would (hopefully) object and the judge would not allow it.

Do not take anything I’ve written as a defense of anyone. I’d encourage investigation into any form of potential corruption. But just because some folks want to find corruption in a given situation doesn’t mean that it exists in every situation. From what I’ve read, Chief DeNardo was, basically, stealing relative chump change from the department and city by virtue of his position as Chief. Thus far, nothing else has been shown, much less proved.

Your analysis is spot in the Courtroom Nun. Obviously I am going easy on certain people in the court of public opinion for a reason but there is no way Denardo works a ghost in a patrol car without people in the police department and Mayor’s office knowing because calls come in at night and there has to be someone on duty to respond and someone else to provide backup. The very nature of the system was such that Denardo could never have overridden the controls on his own in the finance department – that buck can stop with one person, Hizzoner. Worth noting is the City Clerk then was David Kolf, who former City Attorney Trent Favre referred to as his Brother in Christ on social media back when all hell was breaking loose with the other financial impropriety. Favre also once blamed the DoJ fiasco on the Council, which then Council President Mike Favre took umbrage.

So are we to believe that the Patrol Captain, who supposedly collected Ms. Denardo’s timesheets had no clue his night patrols were a car short? The Mayor had his fingerprints all over every department as this post suicide story illustrates.

There is the courtroom standard ‘beyond a reasonable doubt’ and I respect that. In the court of public opinion the standard for the locals is more like ‘Are we to believe our lying eyes or the bullshit being peddled last Counsel meeting by the outgoing Board Attorney’.

1) The assumption that the “patrol captain” did anything. Just because DeNardo turned in something that said someone worked doesn’t mean the patrol captain submitted anything about it to DeNardo. And the patrol captain could have submitted a legit report which DeNardo then falsified. Now, if the patrol captain can be shown to have falsely reported that Mrs. DeNardo “worked,” then you have something. But be careful with this part – just because the patrol captain’s computer/login/whatever entered something, that doesn’t mean the patrol captain did it. Did the patrol captain have any more involvement after the reports were turned over to DeNardo or did he/she just turn it over never to hear or see anything more of it?

2) It is perfectly plausible that payroll forms submitted by DeNardo (and other dept heads) to the mayor/council were approved with no real scrutiny, especially with salaried (rather than hourly) employees. One could argue that is official negligence, stupidity, gullibility, etc., but it isn’t criminal or really, evidence of dishonesty.

That said, a couple of things do jump out – the benefits. I have no real familiarity with PERS reporting and/or what the employee sees, so I cannot comment on that aspect, but if Chief DeNardo was – AHEM! – impersonating Mrs. DeNardo by making (ostensibly fraudulent) payments, contributions, creating fraudulent taxation issues or pension liabilities, and doing it via electronic means, etc., etc., in her name, there are federal criminal statutes now in play. And if she truly had no knowledge of the checks, then she had no knowledge of the tax and PERS payments, which means there is an issue of identity fraud as to those payments.

Frankly, what this sounds like to me is that DeNardo thought he could game the system and for a time, he could and did, but it caught up to him and he killed himself. Again, not a defense of anyone, just what it sounds like from the information given thus far.

Where this might get interesting is _IF_ anyone else was involved, all sorts of nasty things are at least potential charges. True enough, it might be hard to get a AUSA fired up about charging if there were not more meat on the bone, but you never know:

AUSA: “Your Honor, this is the most egregious case of fraudulent overpayment of taxes I’ve ever seen!”
Confused, then annoyed, judge: “Well, I…wait a minute…OVERpayment..? What the…?! You’ve seen more than one?!”

It would make an interesting Damocles situation, esp. for any defense attorney involved.

If The Chief blew the whistle on Mayor Fillingame to the DOJ was he actually not blowing the whistle on his fraudulent activity? Did Fillingame blow a reverse karma whistle on the Chief?

When people form long friendships in public governmental service for over 7 years…….a nonsexual itch starts in their brains and bad shite usually happens…..that’s why term limits and really one term should be the norm for ethical behavior no matter how good a public servant’s work product has been praised.

In respect to etiology/ need for more funds was the Chief or wife seen in any Casinos? Gambling is one of the most often cited causes for fraud just below the embezzler ‘s self justification of being underpaid by his/her employer/government which are both below the #1 cause, gross greed to get ahead in a world with too much emphasis placed on aquiring personal toys.

I heard the chief was saving up for a swimming pool and a motor home to retire. On another note the paper reported that our leaders are going to Jackson to work on the golf cart ordinance. They can’t use a phone or email to save time and money? Is that necessary or just a party and a photo opp?

We already have people representing us in Jackson. Wow, lil New Years get away! I thought when we got Bobby n Wendy off the dole that would end!

I’m going to give em chance to fix what Les n RAF were unable to get done. They were too busy policing the Gaza Strip (SOS Land) to get much else done. They screwed that up as much as could possibly be done.

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